2011 Vol.

Borrower Spotlight
We are pleased to announce 2 new SBA 504 borrowers: Mian, LLC dba B&B Mini Mart will be constructing a new gas station and convenience store at 3301 Cleveland Avenue in Groves, TX. Liquid Waste Solutions will purchase property located at 2270 Loop 4 South in Kyle, TX.

Economic Trends P.3

Welcome to the new SETEDF Newsletter. Our upated publication will be distributed quarterly and will include economic information as it relates to business both large and small. We hope you enjoy our new look.

2010 SETEDF Annual Meeting
The 2010 Annual Meeting of the Southeast Texas Economic Development Foundation was held on Thursday, December 9, 2010 at Pappadeaux Seafood Kitchen, in Beaumont, Texas. The annual meeting of the organization is attended by individuals of financial lending institutions, SETEDF Board Members, the U.S. Small Business Administration, the Small Business Development Center and local economic development professionals. Each year we award individuals from the lending institutions who have partnered with SBAlliance Capital, our Certified Development Company, in three categories. This year, the award for Greatest Number of Loans went to Community Bank of Texas. This year’s annual meeting was the first opportunity to present the First Edition Annual Report. SETEDF administers multiple programs and facilitates several organizations and subcommittees. The report allowed us to showcase all the work the organization has done throughout the year. The report can be downloaded at www.setedf.org. Guests also had the opportunity to view the new SETEDF marketing video. If you would like a copy of the video to display on your company webpage, or to assist your business in economic development, please contact Jessica Hill at 409.838.6585.

Etc…..
The U.S. Small Business Administration’s SBA 504 loan program funds small and medium size business projects . Eligible projects include the purchase, construction and/or renovation of real estate, furniture, fixtures and equipment. The program provides long term fixed rate financing at or below market interest rates. Through the 504 loan, a borrower can finance up to 90% of the total project thus allowing the business to retain its working capital.

Greatest Volume of Loans was awarded to Capital One Bank, and for the first time, we had a Co-Lender of the Year in Matt Crable and Shawn Hurley of Texas First Bank. We also like to extended a special thank you to our Executive Director, Jim Rich, for his 10 years of service to the Southeast Texas Economic Development Foundation. Additionally, we recognized Eric Hird of The Hird Law Firm as well as Statesman Business Advisors for their roles in the success of our SBA 504 loan program.

Hurricane Ike Forgivable Loan Program
We received over 800 applications for business assistance throughout the Southeast Texas region.
In the fall of 2009, SETEDF and SBAlliance Capital took on the task of administering a new loan program (Hurricane Ike Forgivable Loan) to assist small businesses impacted by Hurricane Ike. Funds were made available through a Community Development Block Grant administered by the South East Texas Regional Planning Commission and contracted to SBAlliance Capital for disbursement. SBAlliance was chosen due to the organization’s experience with successfully funding SBA 504 and Hurricane Rita loans. SBAlliance Capital received 809 applications by the due date of January 8, 2010. A team of volunteers spent hours evaluating and scoring the applications based upon credit, length of time in business, and impact of the business on the community. Additional points were awarded based on a scale measuring the degree of rain, wind and flooding. Furthermore, additional points were awarded to businesses located in low to moderate income census tracts. This was a competitive application process with a primary purpose of stimulating the economy. It is a forgivable loan program. If a business is open two years from the date of the disbursement of funds, and meets federal requirements, the loan will be forgiven. Approximately 100 businesses will receive funding in the form of a personally delivered check at the end of January 2011. SETEDF and SBAlliance Capital recognized the need for these funds in our region and were the first to develop a program of this kind. SBAlliance Capital continues to pursue the disbursement of over $1.3 million dollars to local businesses in our region.

Mobiloil Federal Credit Union was chartered July 30, 1935 as Magnolia Employees Beaumont Texas Federal Credit Union. It was one of the first federal credit unions in Jefferson County. MOFCU is now a community charter and currently has nearly 40,000 members and assets exceeding $335 million. Over the years, MOFCU has maintained a competitive position among other financial institutions while adhering strictly to the philosophy of "Not for Profit, Not for Charity, but for Service". Members enjoy a wide range of products and services provided by the latest technology and, in most cases, lower loan interest rates and higher dividends as compared to other financial institutions. Their vision is to be well known as the foremost credit union that offers complete financial services to all members in all stages of life "Once a Member, Always a Member" is one of the basic ideals of the credit union movement. These ideals guide this credit union in its everyday business transactions with members.
www.mofcu.org 800.892.1111 Beaumont | Jasper | Nederland

Small businesses get assistance in Washington
On Sept. 27, 2010, President Obama signed into law the Small Business Jobs Act, the most significant piece of small business legislation in over a decade. The new law will provide critical resources to help small businesses continue to drive economic recovery and create jobs. The new law extends the successful SBA enhanced loan provisions while offering billions more in lending support, tax cuts, and other opportunities for entrepreneurs and small business owners. Provisions for the fee elimination associated with the 504 loan were extended until the end of December of 2010 or until funds expire. However, recent information released on December 20th indicates that additional funds may be allocated to the program to continue the fee elimination. The law further strengthens small business opportunities in securing government contracts, the promotion of exporting, access to training and counseling, and provides $12 Billion in tax relief in order to allow small businesses to invest in their operations and create jobs. Additionally, a new pilot program, Community Advantage, will emerge in the spring.

month, SBAlliance Capital delivers breakfast to a local financial lending institution. We take this opportunity to discuss the SBA 504 loan program and any changes that might be underway . The following are our newest members of The Breakfast Club: November: Community Bank of Texas

It’s been kind of a snoozer lately with respect to major economic news. Economic data continues to show accelerating growth, notwithstanding a lukewarm jobs report that we’ll explain away shortly. Congress and the Administration returned to action for the lame-duck post election session and immediately (if grudgingly) came to agreement on a framework for extending the Bush tax cuts for another two years, thus averting (assuming its passed) the threat of higher taxes derailing the still wobbly recovery. That doesn’t rise to the level of big news, however, since it would have been a stunning surprise if they hadn’t. The Europeans, apparently tired of the Chinese getting all the headlines, ginned up another financial crisis, this time involving Ireland, but the hysteria over that development died down pretty quickly when people realized that you can swap Louisiana for the entire Irish economy about even up (although you might have to throw in Beaumont to sweeten the deal) and that just isn’t big enough to trigger a financial crisis worth worrying about on this side of the pond. The Federal Reserve continued ramping up its asset purchase program per stated intentions, but since Fed policy works with such long and variable lead times the impact on the broad economy won’t be evident for some time yet. So enjoy your holiday grog/nappy time secure in the knowledge that whatever it is that is going to make your life more difficult in 2011 hasn’t happened yet. Ignorance can indeed be bliss. The biggest economic news lately was another soft employment report for November. After several months of encouraging gains there was great anticipation amongst economic geeks that this would be the month we finally turned the corner. Instead what we got was a piddling 39,000 new jobs, 50,000 in the private sector, and a 0.2% bump up in the unemployment rate to 9.8%. Since the bulk of other labor market indicators have been turning more positive lately we’re inclined to view this as more of a onemonth bump in the road than a major disappointment. Initial claims for unemployment, to use one example, have been trending sharply downwards over the last several months (although they are still too high). The initial report is also likely to be revised higher in subsequent reimaginings because that has been the trend recently, and because at least one sector’s estimate – retail sales – is likely off the mark. The seasonally-adjusted number of retail jobs was reported to have declined by 28,000 but we’re sorry, that just didn’t happen. The unadjusted retail count increased by 300,000, but that evidently wasn’t enough temporary hiring to appease the seasonal adjustment model. There has been some speculation by the aforementioned disappointed economics geeks that the timing of the survey in November was too early to catch a lot of the seasonal hiring and that the result will be a big positive turnaround in the December report. Since we mentioned earlier that Ireland was too small to trigger a major financial crisis you may have wondered what country in Europe would be big enough. And since Europe has a bigger problem with long-term spending trends than we do, get used to periodic crises. The accompanying chart (with data from the International Monetary Fund and the Central Intelligence Agency) shows the relative size of various countries economies as a percentage of total European Union GDP (the bouncing balls) and measures of debt/spending as a percentage of GDP. As you may have expected, Germany and France dominate the EU economy, with the U.K., Italy and Spain also being major contributors. You get down below that, however, and the individual country economies are relatively puny. The “At-Risk Countries” are the ones you’ve read about – Belgium, Greece, Ireland and Portugal – and they cumulatively account for less than 8% of EU GDP or a little less than Spain all by itself. So the odds of another global financial cataclysm being triggered by debt problems in any country smaller than Spain are actually pretty remote. As far as risk in concerned, there are two ways to look at things. One is the risk of sovereign default, which can be measured by public sector debt as a percentage of GDP. By this measure Italy, at about 115% has an even bigger issue than the at risk countries, which collectively are just below 100%. At some point it is believed that public sector debt becomes such a problem that it inhibits economic growth. That ratio is generally believed to be around 100%, which may explain why Italy has such a chronically underperforming economy.
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December: Orange Savings Bank

Free Lunch Friday is a lunch SBAlliance hosts the last Friday of the month with the location rotating throughout Southeast Texas. This is an opportunity to learn more about the SBA 504 loan program as well as hear updates on the economic trends of our region. It is your opportunity to ask questions about the economic conditions locally, throughout the state, and across the region. If you would like to attend a Free Lunch Friday, please contact Jessica Hill at 409.838.6585.

But it was private-sector debt (specifically mortgaged backed securities) that triggered the most recent unpleasantness so perhaps total external debt is a better measure of risk. Ireland’s principal pro lem is, in fact, the indebtedness of their banking system, which went big into real estate all over the globe, resulting in total external debt of over 1,000% of GDP (at some point, somebody should have cut up their credit cards). By this measure, the U.K. represents even a bigger risk than the At-Risk Countries, with a ratio of over 400%. And even Germany, considered the model of fiscal probity, clocks in at over 150%. (One thing we can learn from this – when Europeans are interested in U.S. real estate, it’s time to sell.) In case you’re wondering, even after our recent spate of profligacy the U.S. public debt ratio is around 55% and total external debt around 95%. The final form of the tax deal is still uncertain as this is being written, but the general outline is that the Congressional Republicans agreed to some of the President’s stimulus proposals, such as another extension of unemployment benefits, in exchange for the President accepting the short-term extension of the Bush tax cuts for everybody, including the wealthy, and a reinstatement of the inheritance tax at 35% (it’s currently slated to go to 55%). The deal also includes a temporary roll-back of payroll taxes that would counter the expiration of the “Making Work Pay” provision of the original stimulus package. You likely forgot about this, but we all got a cut in our payroll taxes of up to $400 for individuals and $800 for married couples which will expire December 31st. Since the tax cut was added back to paychecks over the course of the year, nobody noticed and it didn’t much stimulate spending. So the thinking of Washington is: if something doesn’t work, then try something else that’s almost exactly the same, only bigger (about $1,400 per worker). There’s been some predictable howling from the President’s liberal base about the giveaway to the rich, but we suspect the deal will pass this Congress (it already has passed the Senate) because if they leave it to next year the President won’t get a deal this good. The real political action next year will be negotiations over a long-term plan to reduce the deficit. To the great surprise of just about everyone the Presidential commission on the deficit came back with a credible long-term plan to cut the deficit that involved cuts in popular program(defense and social security), as well as tax increases and an suggested overhaul of the tax code in general. The specifics of the plan are unlikely to be implemented as such, but the Commission (actually mostly the co-chairs Erskine Bowles, a moderate Democrat and Alan Simpson, a moderate Republican) deserves credit for showing that it can be done if our political leadership is willing to make hard choices. That, of course, is the rub. We know we said that it’s too early to tell if the Fed’s quantitative easing program is working yet, but here are the early returns – it’s not. Actually, that’s a little harsh. It’s not working to drive down interest rates, which are starting to move upwards as financial markets become convinced that the recovery is beginning to accelerate. Mortgage rates in particular have leaped about 0.5% over the past several weeks, delivering yet another blow to the prostrate real estate market. It does seem to be working, along with the tax deal, to increase inflationary expectations, which was a goal believe it or not. So as you go to the gas pump this Yule season and pay $3.00 plus per gallon (which is where retail gas appears to be headed) you can thank the Federal Reserve for being wise enough to ignore prices for unimportant items such as food and energy in their quest to slay the deflation dragon that apparently is threatening to devour us all. It also has not worked to drive down the value of the dollar in foreign exchange markets. While most people would consider a strong currency as a plus, our government and central bankers seem convinced that the only way to work our way out of our huge trade deficit is to manage a decline in the dollar. This worked for a couple of months until the European financial crisis and signs of an economic revival drove the dollar back up. Programs like QE II only work if everybody reacts exactly the way the program designers expect. And in this complicated world of ours, that doesn’t happen very often. We’ll leave this section on a positive note – early indications on holiday spending are that the mojo is back, baby. November retail sales increased 0.8% over prior month, 1.2% if you exclude auto sales (a rather bizarre result, since auto sales in November were actually okay.) October results were also revised sharply higher. Strength was pretty much across the board except for things like furniture and electronics, reflecting the weak housing market and the fact that even American males can only watch so many big screen TVs at the same time. Anecdotally, Zoobles (you’ll just have to read last month’s report) are blowing the doors off – the Wall Street Journal reports that the manufacturer is making one million Zoobles per month and can’t keep up with demand. We believe this reflects well on the Zooble marketing plan and poorly on the state of the American educational system. In China, the kids are busy studying math (they ranked number one in a recent global test) so that they can do a better job making Zoobles to ship to American kids so that they can stare at them instead of doing their math homework (we ranked down in the teens somewhere). At least we’ll be entertained as we slouch towards Armageddon. One other interesting aspect of the retail report is that non-store (online) retailers continue to eat big chunks of bricks and mortar market share. Through eleven months of 2010, non-store retailers’ sales increased over 13% from prior year and the sector, in aggregate, is now larger than the retail furniture, electronics and sporting goods sectors combined.

What’s going on?  The way we go about our daily routines may be changing within the next few months and years.  All of the products we use could be more EXPENSIVE if we don’t do something fast.  The oil and gas industry and related manufacturing are being threatened by over taxation and inconsistent regulations.  If oil and gas companies can no longer operate in the U.S., they will move overseas.  The downside…..

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That makes EVERYTHING more expensive for us. Even worse, other countries do not have the same safety regulations as the U.S., so the quality and safety of these everyday products will diminish. Our town will suffer. If these large companies move out, or shift production elsewhere, the businesses they support will lose work and the entities that benefit from their taxes will face financial problems. Our jobs are at stake. YOUR job is at stake.

What should we do?  Use your voice!

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Talk to your friends, neighbors and co-workers and tell them about this serious problem. Contact your local leaders. They need to know that their constituents are worried about their livelihoods. It is their job to make sure your voice is heard in Congress. Show your support. Attend local town meetings and talk to your professional associations.